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Separating New Zealand's Incumbent Provider: A Political Economy Analysis

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  • Howell, Bronwyn

Abstract

Economic and policy literature on the vertical separation of incumbent telecommunications providers indicates that costs and risks of separation are high and benefits hard to identify. Thus providers should only be vertically separated when there is a proven risk of discrimination all other feasible regulatory avenues to control the risk have been eliminated and a cost-benefit analysis indicates a favourable outcome for separation. Contrary to this view the New Zealand Government mandated the separation of Telecom New Zealand without either detailed empirical analysis or active debate of the issues. Examination of the case reveals that political (rather than economic) factors best explain both the motivation to separate Telecom and the manner in which the separation was imposed. Pursuit of competition has replaced pursuit of increased efficiency as the objective of sector policy leading to direct political control of sector regulation. New Zealand's separation policy process is therefore unsuitable as a model for economic-principled policy-making in other jurisdictions.

Suggested Citation

  • Howell, Bronwyn, 2009. "Separating New Zealand's Incumbent Provider: A Political Economy Analysis," Working Paper Series 19130, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    • Handle: RePEc:vuw:vuwcsr:19130
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    File URL: https://ir.wgtn.ac.nz/handle/123456789/19130
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    References listed on IDEAS

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    1. Howell, Bronwyn, 2007. "A Pendulous Progression: New Zealand Telecommunications Regulation 1987 -2007," Working Paper Series 3960, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Alleman, James & Rappoport, Paul, 2005. "Regulatory Failure: Time for a New Policy Paradigm," MPRA Paper 2517, University Library of Munich, Germany.
    3. Mark Armstrong, 2001. "Access Pricing, Bypass, and Universal Service," American Economic Review, American Economic Association, vol. 91(2), pages 297-301, May.
    4. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    5. Howell, Bronwyn, 2007. "A Pendulous Progression: New Zealand's Telecommunications Regulation 1987-2007," Working Paper Series 3974, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    6. David Boles De Boer & Lewis Evans, 1996. "The Economic Efficiency of Telecommunications in a Deregulated Market: The case of New Zealand," The Economic Record, The Economic Society of Australia, vol. 72(216), pages 24-35, March.
    7. Productivity Commission, 2002. "Telecommunications Competition Regulation," Development and Comp Systems 0201002, University Library of Munich, Germany.
    8. Howell, Bronwyn, 2008. "From Competition to Regulation: New Zealand Telecommunications Sector Performance 1987-2007," Working Paper Series 4003, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    9. Jerry A. Hausman & J. Gregory Sidak, 2005. "Did Mandatory Unbundling Achieve Its Purpose? Empirical Evidence from Five Countries," Journal of Competition Law and Economics, Oxford University Press, vol. 1(1), pages 173-245.
    10. Howell, Bronwyn, 2008. "The End or the Means? The Pursuit of Competition in Regulated Telecommunications Markets," Working Paper Series 4002, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    11. Howell, Bronwyn, 2007. "Pendulous Progression: 20 Years of Telecommunications Regulation in New Zealand," Working Paper Series 3968, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    12. Cave, Martin, 2006. "Six Degrees of Separation : Operational Separation as a Remedy in European Telecommunications Regulation," MPRA Paper 3572, University Library of Munich, Germany.
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